IMSK- 1H result 2011

Friday, 15. July 2011 09:00
The pre-tax result for 2Q was positive USD 0.4 mill compared to negative USD
4.5 mill for 2Q2010. The pre-tax result was a negative USD 4.1 mill for the
first half of 2011 (1H11) compared to a negative USD 8.6 mill for the 1H10. The
result of the 1H11 on an EBITDA basis was USD 14.1 mill compared to USD 6.6 mill
for 1H2010. The EBITDA result in 2H2010 was USD 12.6 mill.

Our views of the performance of the company in first half of 2011

In second quarter we took delivery of the first 12'000 cbm Multigas LNG vessel
"Norgas Unikum" and the ship is set for its first ethylene cargo in July.  Two
more vessels are under final stage of construction and scheduled for delivery in
September and October of 2011. The completion and delivery of these will mark
the end of the current gas carrier newbuilding program.

The uncertainty re the timing of the expected export license and thus delivery
of Norgas Camilla or WG#3 - the last of the three vessels in the Wintergas
series - remains throughout the 2Q11. In May we received an interim award from
the Hong Kong International Arbitration Centre with a positive decision for our
legal demands of an immediate release of the ship by the Chinese counterparties
involved. The next step is now to make the relevant Chinese authorities and
courts enforce this verdict in mainland China. The ship yard is cooperating to
deliver the ship, but the trading house involved is not. Through this process,
we have received continuous support and assistance from the Chinese Government
and based on the legal position from the award we believe that the export
license may soon been issued, and thus enable us to finally take delivery of the
last 3 Wintergas vessels in 3Q 2011. Delivery of this vessel will generate USD
33.5 mill in improved liquidity and this will directly improve our profitability
as well as improve the equity ratio from potential reduction of working capital
and associated debt related to the construction of the vessels.

We expect the global economy to continue to expand with the associated growth in
trade and as per the forecasts and one that remain mainly unchanged. The
Emerging Markets remains the growth engine of the global economy. However, a
temporary slowdown of the Global expansion has been observed due to the slow
economic recovery and perhaps the debt crisis in some of the advanced economies.
The short-term turbulence caused by inflation and policy tightening in the
Emerging markets is considered temporary.

We maintain our strategic focus on business that can be generated in the markets
"East of Suez" and believe that the global economy especially the Emerging
countries will achieve sustainable growth going forward. The most important
drivers we see is the expansion of low cost production in Middle East of
relevant petrochemical products and the increased demand of same from countries
like China and the Indian subcontinent as well as most parts of South East Asia.
The unrest in certain parts of the Middle East has so far had little or no
effects neither on the expansion nor on investments. For us the Gulf region or
the GCC countries are the key markets for export of the petrochemical products
and these countries have so far been mostly unaffected by the unrest within
other countries bordering the Mediterranean region.

Norgas Carriers

In the first half of 2011 we experienced improvement of the utilization level of
our gas tankers as the supply / demand balance in the spot market tightened. The
results in Norgas Carriers were significantly better as the EBITDA during the
first half of 2011 increased by USD 9.2 mill compared to the first half of
2010. This despite the fact that Norgas experienced higher off-hire and
increased dry dock costs due to unexpected damages in 2Q11.

Most of the growth in Norgas revenues in 2011 is derived from increased export
of Gulf region cargo volumes, and the market is continuing the positive trend
seen from mid-2010. Norgas has about 70% of the fleet on COA and T/C basis for
2011 which has contributed to steady earnings. On the other hand, large volumes
under the Gulf region COAs have also limited our flexibility to take advantage
of a relative tight spot market seen in the first two quarter of the year.

The reported spot markets rates for seaborne transportation of ethylene by gas
carriers were at highest USD 720k per month during 1Q, however, in 2Q the spot
rates decreased to USD 620k per month with one year T/C being reported as
unchanged and at USD 550k.

Possibly due to tightening monetary policy in China, the demand seems to have
weakened somewhat during the recent months. Nevertheless, the current market
condition is expected to improve as the Chinese credit tightening could be
approaching its end.

Norgas Innovation - our first of a series of 6 "Multigas vessels" loaded and
unloaded its first LNG cargo in early July. A crucial step for IMS serving as
proof of the concept and it enables us to move forward in the establishment of a
market for Small-scale LNG vessels.

Piracy

Piracy at sea has become a well organized crime. However, it is above all
performed more as a "business" which has been "booming" during the recent years.
By mid-June 2011, numbers of total attacks worldwide has been reported to be
243, of which 154 incidents were reported for off Somalia. Of 26 hijacked
vessels, 21 of these were reported for Somalia. 362 hostages are currently kept
for ransom by the Somali pirates.

Piracy and the effects that in combination leads to lack of safety for our teams
of professional crews has become a great concern for us and for many of the
shipping companies which are operating ships within the area of Gulf of Aden.
The piracy infested areas have recently been expanding to the entire Indian
Ocean, increasing the risk and probability of being attacked and the crew being
hijacked by the pirates. One reason for piracy beyond the initial area off
Somalia is that while the risks- for the pirates on the high seas are high it is
still very profitable and made easy for new startups. Most of the shipping
companies affected are willing to pay ransom in exchange of safety of the crew
and property. There is further very little efforts by the International
community to assist to safeguard international shipping and our crew against
this type of organized crime. Only a few nations are currently arranging escorts
for ships by naval forces. Norway is not one of these.

Norgas is focused on prevention of piracy incidents through early detection and
evasive tactics.  We have so far not yet had an incident with our vessels
incurring violence or risk of capture of crew and property. The vessels are as a
matter of policy sailing in convoys and avoidance of piracy hot spots is
arranged through rerouting and route monitoring during transit. New electronic
detection aids and active anti-boarding systems have been tested and installed.
We are also testing new devices all the time which are in addition to use of
high performance radars and binoculars for our lookouts. The Norgas vessels do
not currently have armed guards onboard, but this policy is being evaluated as
rules and regulations change and there are more professional such services
available. Citadels on the Norgas ships are strengthened through further
developments and equipped with independent satellite communications and being
upgraded with CCTV. The Crew training program is also in good progress and
masters receive specialized training at advanced training centers. Costs spent
on equipment, crew training, risk insurance and the cost of extra waiting time
for convoys in terms of lost turn-over have amounted USD 3.5 mill over the last
2 1/2 years. We do carry proper insurances to help mitigate the economic loss
for the company of such events, but this cannot compensate for the suffering of
the crew involved in such cases.

The order book for gas carriers and the recycling of ships

The current Semi-Ref (SR) fleet consists of 243 vessels (2,428,151 cmb). The
order book for semi refrigerated vessels with cargo capacity above 4,000 cbm is
currently at 37 vessels (total 387,300 cmb) and equal to 16 % of current
capacity. A total of 15 newbuilds (157,900 cbm) is to be delivered during 2011;
this equals 37 % of the total order book. 8 of the Semi-Ref vessels (69,800 cbm)
have the capacity of carrying ethylene, of which 5 vessels (49,800 cbm) or about
one third of these total deliveries in 2011 are for the Norgas Carriers
operations.

Within the SR segment, there are 125 vessels (1,117,215 cbm) above 4,000 cbm
that have ethylene carrying capacity as of 1H2011, this amounts to approximately
46 % of the total SR fleet.

The current order book for ethylene carriers is 25 vessels (226,200 cbm); it
equals 20 % of the existing fleet and these will be delivered between 2H2011 and
2015. These are for long haul and short haul transportation. For long-haul
transportation the orderbook for ethylene carriers stands at 12 vessels or
142,600 cbm capacity, while the order book for short-haul ethylene carriers is
at 13 vessels (83,600 cbm)

Concerning the age of the world SR ethylene fleet, the normal age for recycling
of such vessels has been between 27 and 30 years of age. However at about 25
years of age it is quite normal for such ships to cease carrying ethylene and
concentrate on other less demanding products to trade. There will be total 28
ethylene carriers (199,820 cmb) over 25 years which equals to 15% of the total
fleet by 2015, and thus mitigates the growth of the fleet in the period.

In 2Q, the ethylene carrier Norgas Trader built in 1981 was sold with a realized
book value gain of USD 0.7 mill.

Skaugen China Activities

The result from Skaugen China Activities contributed with a positive EBITDA of
USD 0.3 mill in 1H2011. The Shenghui Gas Chemical System Company (50% owned by
IMS) has increased revenues by 39% compared to the 1H2010 as Shenghui has been
growing its business with a substantial amount of new orders. With the IMS
orders completing Shenghui has been working on increasing third party business.
IMS orders will account for only approx. 6.5 % of 2011 revenues of Shenghui vrs
26% in 2010.

The revenue growth of Shenghui has improved; nevertheless the gross margin is
still under pressure as the company has suffered from inflationary pressures in
China. The two factors combined have caused low YTD result compared to last year
and the budget.  We continue to look for and consider the opportunities within
the Chinese (IPO or PE) market in order to visualize the values created in
Shenghui since we became the largest shareholder in 2006.

SPT - Marine Transfer Activities

SPT delivered a positive result of USD 2.08 mill on EBITDA basis (IMS share of
the result with a 50% ownership) for the second quarter of 2011. For the first
half of the year it ended at negative USD 0.8 mill in EBITDA due to losses from
operation of the crude oil tankers during the first quarter. The crude oil
tanker business of SPT is still largely affected by a poor tanker market.
However, during the second quarter, SPT showed an improved performance within
ship-to-ship transfer which helped to offset part of the negative outcome from
the crude tanker market.

SPT received the prestigious Devlin Award issued by the Chamber of Shipping of
America for 4 of its LSVs for operating more than 2 years without a crew member
losing a full turn at watch from an occupational injury.
Financial issues

The Group has NOK 39 mill outstanding in IMSK08 matures 15(th) July which will
be repay at maturity. Further, the sales proceeds of USD 33.5m from WG3 will be
utilized on bond repayment which will have positive impact on the equity ratio.

As the company's proactive efforts to mitigate potential refinancing risks in
the bond markets for our bond portfolio, the Group will consider refinancing
opportunities for IMSK04 which matures in September 2012.  Within the current
bond portfolio, the bond with the longest duration matures in March 2013.

The IMSK share

During the first half of 2011, IMS adopted SEB as its new Market Maker for
improve the stock trading liquidity and tighten the trading spreads for the IMSK
shares. The trading spreads have had more stable development with an increased
volume since May compared to the period without Market Maker.

The share price has had a steady development in general compared to the
benchmarks and peer groups over the last 12 months.




IMSK-1H result 2011:
http://hugin.info/179/R/1531208/465984.pdf




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Source: I. M. Skaugen SE via Thomson Reuters ONE

[HUG#1531208]
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